Risk vs. Reward: How Investing Can Boost Your Savings
There’s a huge difference between saving and investing, and how you differentiate the two, can have big implications on your financial success. Saving money is good because you’re keeping money for your future. However, investing money is better because you’re making the money work while you sleep.
We’ve all heard about how financial advisers tell their clients to invest in the stock market, or trade in Forex. Despite the fact that investing can give people a lot more money, many Americans are afraid to take the leap. For many, the risks involved in investing are too great to let go of the little savings they can keep every month.
U.S. average expendable income
A graph published by Statista shows how the U.S. average expendable income hardly changed in a year. From December 2016 to December 2017, the disposable personal income fluctuated sharply. However, at the end of the time frame, the disposable income didn’t increase; it was still at 0.3% by December 2017.
Disposable personal income is an important indicator of an economy’s outlook. Monthly income determines a person’s ability to consume goods, as well as one’s ability to shell out money for personal investments.
With a 0.3% disposable income, it’s understandable why a lot of Americans are afraid to take a leap into the world of investing. After all, a short margin of allowance on monthly expenditures makes it scary to let go of money. The fact that stocks and currency prices fluctuate sharply from time to time isn’t giving the public the security they need to feel in order to try and make a few investments.
However, despite the uncertainty surrounding the stock or Forex market, people are still encouraged to make a few investments. That’s because people who rely on their job’s monthly salary are stuck in a rat race that will go nowhere. A fixed monthly salary in today’s economy is not enough; only through investing can one truly secure a comfortable future. A low percentage of disposable income isn’t reason enough for people not to invest. In fact, this low margin of disposable income should be reason enough for people to find more resources of income. Investing shouldn’t break the bank. This site has proven this fact over and over again through posts like ‘How to Invest in Real Estate Without a Ton of Money’.
Long-term rewards for people who step into the world of investing
It’s true that there are a lot of risks involved with investing. Forbes lists four risks that investors need to be aware of, and one of them is the devaluation of money. However, just like any other venture, risks are often rewarded with great compensation, and investors only need to have good experience and knowledge with investing in order to enjoy financial freedom.
For example, when it comes to investing in foreign currency, investors can see significant returns on their capital through leverage. FXCM details that banks allow investors to trade with leverage because the Forex market’s liquidity is very deep. With this knowledge in mind, investors can take advantage of the leverage, and control their losses through proper planning and financial management. By risking a little bit, investors can boost their savings whether it’s through investing in foreign currency or any other investment vehicle.
Apart from leverage, the compounding returns of investments help investors in generate revenue. The earlier you begin, the greater your chances of getting a compounding interest. To put it simply, this is like a bank’s time deposit feature. Regular investments in an asset can lead to big compounding benefits.
Historically, investments that carry some level of risk have rewarded their investors as a result. This article by the Morning Star shows how patience is often rewarded by valuation-driven investments that deliver compounding interests overtime. Of course, this is not always guaranteed. But while keeping money in the bank is unquestionably safer than making investments, the former is unlikely to get significant levels of growth.
